We're Arming The Rebels Of Amazon: Shopify COO

and manage their online stores. Stock has done phenomenon well, just had some great earnings out on the last couple of days. Hardly Finkelstein, chief operating Officer Shopify, joins us here on our Bloomberg Interactive Broker studio. Hardly, thanks so much for being with it. Usually we chat with you on the phone, so it's good to have you in studio to be here. What is driving the growth of Shopify. I mean when people think online, they just they just

and they think retail. They just think Amazon putting retail out of business. But there are a lot of retailers using your technology that are kind of getting it done right. Yeah, there's a million merchants, a million stores now on Shopify and they old sixty one billion dollars in two thousand nineteen. That's up about forty nine percent from the previous year. Our revenue for two was approximately one point five billion.

That's up. So certainly I think people are beginning understand what Shopify is and what we are is where the world's first retail operating system. And uh, we have stores that are starting on shop If they getting really big, that's the all Birds, that's the bombas Socks of the world, that's the gym Sharks of the world. They're becoming category leaders. But also we we also big brands I mentioned kitchen Aid and PepsiCo and PNG that are also moving over.

So they use you, your guys platform as opposed to building themselves. Is that kind of the way do you think about Yes, some of them built these homegrown stores, homegrown stores and decided they don't want to run massive engineering teams. In other cases, they're migrating over from the

large enterprise offerings. So if you look at a chart of your stock since the end of two thousand and eighteen, it's just con stratospheric, right, I mean, it's just absolutely rocketed, and I'm trying to understand how you maintain this sort of momentum at a time when there is a lot of competition and at a time when there still are a lot of questions about the economy. Yeah, So a

couple of things. First of all, I think when we first swent public, which is does in fifteen, Shopify was really e commerce provider for merchants and entrepreneurs and small businesses in English speaking world. Since then, we've expanded well beyond e commerce. We now power physical retail across If you walk in any Albert store, you'll see Shopify powering the physical locations, and we do that across thousands of

brick and mortar stores. We have a capital business. We've given them more than eight hundred million dollars in cash advances. We have a payments business. We're launching a fulfillmance business now. And we've also expanded beyond just our core geographies um.

In fact, we've grown our um the amount of merchants on our platform outside English speaking countries from twenty four percent last year to this past quarter, and so we're seeing a larger TAM and we're doing more for our merchants, which is why I sort of refer to us as this retail operating system, not just an e commerce provider anymore, so you know, as an e commerce provider or expanded larger. You guys did not come out of Silicon Valley, did

you. You You guys are in Ottawa. We are absolutely abel like the start up community, the startup vibe in Canada. It is audaa Audawa the place to do it? Or is it just entrepreneurs kind of all over? Yeah? Actually, I think startups in entrepreneurship and technology has become geographically agnostic. I actually think it's an advantage to be outside of

Silicon Valley. I have a lot of piers that run companies like like Hours in the Valley and they tell me that the average tenure of employees they're super short, like eighteen months. We see incredible talent coming out of Canada, we see incredible loyalty, and I think there's something to be said about being the best place to work in any single geography. And I think Shoplay is the best place to work in Canada and one of them around the world. What about competition, I imagine that Amazon would

love to get a piece of what you're doing. Yeah, So we don't get be with Amazon, our million merchants do. And I think what Amazon is doing is they're trying to build an empire, and what we're doing is we're arming the rebels, and the rebels are winning. So you see companies like Nike moving off Amazon because they want to have a direct relationship with or in consumers. All Birds, for example, if you try to buy All Birds and Amazon, you can only find fake all Birds and and and

Albert has been built on Shopify. So basically the idea here is rather than go to Amazon, you're trying to give them tools to be able to do it themselves and create a platform. How do you offer them the same kind of visibility that they may get in an Amazon. Yes. So certainly if they're gonna put their products on a marketplace like Amazon or eBay, they're going to obviously, uh, they're gonna rent their customers to those to those brands.

We actually created a platform where our merchants are brands can actually find their own customers and own them, whether through social media or you can buy marketing directly from Shopify on things like Google or Facebook or Snapchat or Instagram, and so rather than simply giving them, customers are renting them the way Amazon does, and eventually they can take them back. We actually empower these merchants to create their

own customer basis and then connect directly with them. Where are you guys investing in heavily in SFN shop Life Fulfilm Network. We think that is if you sort of look at what we've been doing the last couple of years, we're taking off all the different challenges that a small

business or a big business may have. We think fulfillment is one of those things people don't want to use, uh the party logistics companies because either the requirements and moms are way too high, or they put everything in the same box with their marketplaces logo on it. What we're doing is we're creating this network of third party warehouses were aggregating them using technology and software. We bought a company in Boston called six Rubber Systems last year

for about four and fifty million dollars. They're going to provide incredible robotic technology to make all warehouses a lot more effective, and then we're gonna democratize shop of the Fulfilming Network. The way we've done with e commerce. Just real quick here, I'm wondering what's the most effective platform for advertising that you found. It really depends, I think for a lot of these DTC brands, the ones that are you know, new director consumer mattress companies or companies

like that. Honestly, social media seems to be the best one. Now that being said, others are are in more of these traditional industries. Their TV is actually working really well for them. Interesting, Probably real quickly, Elon mess Musk is taking advantage of this surging share price to sell some stock. Are you guys interested in selling stock? Not at this pine? Okay, Harlie fickle ste and thank you so much for being here. Charlie Finkelstein, two operating officer of Shopify based in Ottawa,

joining us here in our interactive broker studio. Well, the global travel industry is really at the forefront of feeling the brunt of the coronavirus. You know, I'm thinking cruise ships, hotels, casinos, really seeing business impacted significantly in the shares of those companies reflecting it as well. Our next guest has a equally cautious view of those sectors. Tuna A Moobi. He's a director and industry research analysts at cf R A Research. He joins us on the phone, Thanks so much for

joining us again. I know you've gone become more cautious, downgraded a bunch of stocks. Tell us how you see kind of some of these uh, casino companies, cruise lines and the like. Good morning, uh Paul, my friend, and thanks for having me. Um. So over the past um two weeks or so, we have actually taken a more dare assessment of a potential impact of the coronavirus on UM, you know, the overall tourism and UM, you know, the

cruise ships, UM, the online travel companies, the casinos. The one constant theme has emerged is that, UM, you know, while it's very difficult to quantify the overall impact, and of course no one really knows the duration of how long it's gonna last, but we think that it's starting to take a toll right now. And you just heard about you know, the higher number of death tolls UM,

as well as more cases being diagnosed. So my sense is, UM, you know, the market may still be underestimating the potential impact of this, if you remember, UM, I think it seems to be some comfort level that if you compared to the um the Stars or the Bola, and while those cases were ultimately you know, resolved, limiting its impact, what warries us here is really the speed and severity of of the of the new cases that are being diagnosed on the death toll, which kind of leads us

to believe that this is gonna come. You need to be an overhang as as the year goes on for for quite some time. You know, it's so interesting to hear you speak, because we speak with economists and investors who say they're expecting some sort of V shaped recovery

in the economy of China and beyond. And I'm wondering as you look at MGM basically withdrawing their entire outlook for the year, citing the disruption from the coronavirus, the fact that they get twenty seven percent of their business from Macau UH and are losing and estimated more than a million dollars a day based on the current shutdown that we're seeing, how can we even be so sure that a place like MGM could compensate for this later on we can be at the short answer, We're actually

are taking a more negative view of MBM downgrading to itsell ahead of their earnings. Um, you know report last night. I think that just confirmed to us, um that you know, no one really has a handle of this. So they talked about the expanded burn rate about one point five million dollars on a daily basis evil, while the casinos have been shot down mostly for peril, and that was also a thing that we heard from Wind Resources and

in Las Vegas. So I think you're really starting to see, uh, you know, the casinos starting to feel the brunt of this. And remember, um, you know, these are you know, in an industry that was alreadily already I'm sorry, already massively impacted by the Hong Kong protest. So these latest coronavirus issue just seems to be adding a saut to to injury and really no one how to handle on on

when this is gonna dissipay. Now, one more thing I'd add is that even when the situation is resolved, typically from a historical perspective, we usually see several months before things can get any semblance of normalization, which is really why we think this twenty um at least the first half certainly is gonna need much more caution to know this is definitely specific to the casino industry the travel industries.

Is there, though, a broader brush that we could paint in terms of the potential longer term impact given your experience examining the corporate balance sheets of these companies as well as the likes of Amazon and Netflix. Well, you know one thing that I'd say that China overall, um, you know, most of these companies you talk about, Amazon and Netflix have a relatively limited direct exposure in China

poly due to the regulatory um environment now. But I think the UM what I see is some type of uh uh you know, um kind of tangential fallout from this geopolitical situation. UM. A lot of these companies, even when they are not directly operating in China, have some type of strategic partnership. That's true certainly for online travel companies, and of course casinos have a huge stake in there.

So every industry is different. China itself has been a major, uh you know, kind of driver of global tourism outbound travel, and I think what's important to remember is that while um, most of the issues right now appeared to be limited to China, they could be. In fact, it broader geopolitical impact across even the US and other uh you know

markets like Europe. Of course, that depends on how fast those uh cases travel, but overall, while the overall impact on GDP growth is the relatively meted at this point, I think you could actually uh see that situation get out of control pretty fast. So so it's just on

the cruise lines here. I know, when you talked to a lot of people about, you know, why don't you go on a cruise, one of the concerns is just being you know, stuck with so many people in a confined area, and it just seems like, you know, these

outbreaks of diseases are perhaps more common there. Do you think there's longer term risk to kind of just the whole market, you know, total market size for the cruising industry from this, I think what's interesting that before this coronavirus outbreak, um, you know, the cruise industry fundamentals were pretty healthy. We're expecting the you know, kind of a near record year based on advanced indicators of booking and pricing, on board spending. Um, you know, all of those indicators

seem to be holding up well. Now, Uh it seems like all bets are off when you kind of hear stories about you know, the diamond prices being quarantined and several other ships unable to find landing ports or destinations. My sense is that there is a certain amount of weariness out there, um among potential cruise passengers in terms of booking pending the resolution of this issue. So, um,

I think you're starting to see the guidance from cruise companies. Uh. You know, at risk is actually why we took a more negative stance on Royal Caribbean as well as um A Norwegian Cruise, both of which we downgraded well obviously along on carnivals. So uh, this is something that's gonna over over the industry until any more visibility in terms of the potential resolution to not just real quick here

thirty seconds. Do you buy this argument that Netflix is getting a whach boost from this because people are sitting home and doing Netflix and chill rather than going out potentially getting coronavirus a leita. That's something we've heard before, but I'd say a little bit far fetched at this point. It's really hard to kind of connect those dots. That

being said. I mean, I can understand why, you know, maybe isolated cases that could be true, but hard to generalize here do you know, Moby, thank you so much to know MOBI director and industry analysts. It's c f R A Research and joining us on the phone from New Jersey, I love that I write a bunch of stories about how Netflix. You know, we talk about the negative impact of the coronavirus, but there are companies benefiting because people are staying home and they've got to do something,

so they might as well watch movies. On Monday, the Department of Justice and anced charges against four members of China's People's Liberation Army hack of Equifax, and this was something that exposed millions of Americans and their private data. It raises questions. Putting aside this particular case, it raises questions about just how well we are able to detect the attacks that our data is exposed to every single day. Joining us here in studio, Steve Wagner, Global Managing Director

of Decision Analytics four experience. Uh, Steve, so glad to have you. I want to start with that, where are we when it comes to detection when it comes to these attacks? Sure? Well, the particular angle that we tend to come at this from in my business is is really fraud and identity um within commercial transactions? So a

lot of ways you can answer your question. We're focused on that particular angle UM I think when we think about it, and we just released a study that we've done a six hundred six thousand, five hundred consumers and six fifty bi no. This is in thirteen countries around the world, and we've been looking at this question of how businesses should sort of say, shape their understanding, how

do they react, what do they do? So the big issue is businesses faced with those kind of security threats instinctively sometimes will just clamp down, right, I you know, the best thing for me to do is to not be involved digitally with anybody. Of course, that doesn't really allow you to do business very much. So the business persons, Yeah, the business person really has to think through what's the right way to do that, what's the right way to

make commerce work? So what our business people are generally thinking about is how do I create an extraordinary digital experience for my consumers? That's what they want to do, right. What we found in this particular study was that of businesses believe that they're actually doing a good job of identifying who's coming to them, um Electronically, fifty of consumers believe that the business is actually understand who they are,

which is obviously a significant mismatch. So do you think the businesses that think the businesses think they're doing a good good job identifying who their customers are? Is that is that kind of false sense of security there? Do

you think that that is a really valid number? Well? What, well, I think the numbers valid in the study, but what they're what you have to get to in order to understand that mismatch is the way businesses are looking at it today versus the way consumers are looking at it. So the way when you when you talk to a consumer, what do they care about first and foremost in the digital interactions, they care about security. So actually, when you talk to a consumer your business, you're dealing with them

online in disha of security. Make them feel better, make them happier to interact with you. A business. On the other hand, when you rank their priorities, number one in their priority list is uh creating an experience that is targeted to that individual, right, So in other words, they'll look at it, they'll say, yeah, I understand. I know who Paul is. I've seen them before. Um, that's all

I need to know. Now. The real question is whether or not the things I say to Paul and what I do with Paul is really on target or not. And the consumers just saying, hey, look, actually, when you asked me for passwords and you asked me, you know, put me into a credential environment. That's what I'm willing to share. So, you know, but this goes really to the heart of do you know who you're dealing with? Do you know what the incoming attention you're getting really

is about. According to the same study you you talked about, how fraud continues to increase, with fifty seven percent of businesses citing an increase in the past twelve months. And I just wonder how much this is an increase in the ability to detect some of these and how much is an increase in attacks or is it both? Yeah, So I think there's an opportunity in the market right now because I think what we've identified this mismatch between

how consumers feel and where businesses are. Businesses also believe that if they really understand who the consumer is, fraud will go down so sort of it's clear in the study that businesses aren't quite getting it right yet. So what businesses need to do is UM is take more advantage of the data and the analytics that are available within these online digital environments. So right now, I don't

think they do that enough. They tend to say, all right, I've gotten passwords for this individual, I know their name, I know if you I know them. But actually there's a quite a bit more UM available, and in particular, there's there are quite a few individual threat modality fraud

tools that you can use. And the question is are these being knitted together into a comprehensive way or our business is just employing Oh, I use I use device, I d oh, I use biometric behavioral biometrics, I use this, when in fact, what you really need to win today is you need a comprehensive capability that incorporates sort of all of the different tools that are available, layers that with UM analytics so that you can really instruct strong defenses.

Steve Wagner, thanks so much for joining us. Really fascinating that discussion is more and more of our time is spent online. Uh, you have to balance the does the business know me and are they protecting my data? And all those times. Such an interesting concept that, you know, there's one thing about having artificial intelligence detecting all of

the incoming threats. It's another thing just know who you're dealing with at any given time and how do you do that well, and that sort of dual approach to trying to stave off some of the attacks that are seeming that seemed to be increasing for every business that does that does that operates in the online world, which

is everyone everyone. Steve Wagener, Global Managing Director, Experience Digions Decision Analytics, based in Orange County, California, but joining us here in our Bloomberg Interactor broker Studio Tesla really in the front and focus today which shares up one point six percent. This is amazing because ahead of the open we saw shares down as much as seven point two

per cent. And this comes after a filing showing that they planned a two billion dollar offering of common stock taking advantage of the rally and the share price that we've seen that's been absolutely astronomical. I'm trying to understand a why people don't seem to care that they're going to be diluted, very very marginally. But typically this is something that that matters, uh, and be why then Tesla

didn't raise more? Kevin Tynan joining us here in our interactive broker studios Kevin Tyne and Senior Auto's analyst for Bloomberg Intelligence. Kevin, let's just first talk about the response. Why are shares up today? Um? Well, because I think the idea of adding uh capital of the balance she wasn't an overhang, right. I think that the investors believe that they are. He said this in the middle of they're going to be profitable from here forward. They're going

to fund themselves from here forward. So I think that that removed the bear case or that bear argument at that time. Uh So, needing a little bit of capital here, it's it's it's not that big a deal to sort of reverse, especially when you think of the circumstances, right, it was it's a no brainer considering the way the stock is run and and the amount of it's it's absolutely the right thing to do. And to your point, I would say, why not do even more than that? Um?

But but a lot of the way this has managed, this company has manages about that perception, right, Just the idea of burning short sellers, right, is just something you don't really see from most ceo s. Right, you run the business the right way, uh profitably growth and that takes care of itself. To actively sort of target that

group is just it's just unorthodox. And I think that's a big part of it, is that perception that raising capital shows a sign of weakness, that we can't fund ourselves, when in fact it's just part of the process and when it make sense to do so, you do it. So the company also announced that they're going to spend about three and a half billion dollars in capex this year. Give us us Is that enough for some of the plans they've announced. It is because of UM he loves leverage,

and really in this environment, who doesn't UM. So a lot of that fixed investment will come from from borroing, like so, even the Shanghai factory was money taken down from the from the Chinese government, and same thing probably with Berlin. So so that capex number that they put out there probably does not include anything they would borrow to UM to build those factories or to expand out and get to some level of scale in China. Whether

that's distribution infrastructure or sales infrastructure. All that stuff will come out of that cap X number, but the buildings themselves will come from the borrowing. Ela Musk has said that they were not going to be raising more capital this year, so this isn't about face for him. Also, Tesla has been cutting pockets expenditures over the past few years in response to criticism about burning through cash, and they reported an actually that profit, which is one of

the reasons why shares rallied so much. Given that, and given that they seem to be doubling down on the spending and not necessarily the cash generation, why are investors so sanguine about this move? Well? I think also to keep in mind the projects that he's that he's teased, right, so there's roadster two point oh, there's semi truck, There's there's cybertruck, there's Model why coming, There's all these grand plans.

There's Robotaxi fleet a million units in so so investors the reaction will be like, he's funding the growth, right, There's enough things to do, there's factories to build, there's products to put out there that this is what you have to do. You need capital do it and that's

what he's doing real quick. What's the demand for electric vehicles to have a boy, you know, it was is in the one percent range in nineteen, So one of the bulls think it will be well if if you ask the Uber bowls, it's gonna be that everybody who owns a car will have to have an electric vehicle. Plus it's not only a vehicle, right, it's your smartphone, It's it's everything. So Tesla as a technology company can be all things. Everybody who needs a car and a

phone is their addressable market. Kevin Tyne and Senior Auto's analyst Bloomberg Intelligence joining us here on our Bloomberg Interactive Broker Studio. Tesla stock up just you know, about one and one and a half percent here, But that back on the news of a two maybe two point three billion dollar stock offering, UH and the associated the dilution and supply into the marketplace. Just extraordinary that the stocks

trading up. But Kevin was mentioning there is a lot of capital demand for this company and there's a cull to of belief behind Elon Musk, and I think there are other company companies that if they suddenly decided to invest money in some questionable project, people wouldn't rally behind them. Elon Musk is a different case. It's a different case. It is a cold stock for many. Thanks for listening

to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woy. It's I'm on Twitter at Lisa abram wits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.